6 things to consider before investing in a rental property

Posted on: May 4, 2016

By Karin Mizgala, co-founder and CEO Money Coaches Canada

Holding house keys on house shaped keychain in front of a new home

The average Canadian house price hit $508,567 in March however that number is skewed by the incredibly hot real estate markets in Vancouver and Toronto. If you remove those markets from the equation the average home cost drops to $366,950. But even that lower number represents an increase of 15% in the average sales price over the last year, and coupled with low interest rates, real estate has certainly been a financially attractive investment recently.

However, there are things to consider when contemplating investing in a rental property, as I explained in a recent Globe and Mail Q&A article.

globe and mailKarin Mizgala Money Coach Salt Spring Island BC

 

 

Question from Larry, 57, of B.C.: Would it be a prudent move to purchase a condo for future downsizing if I have 100 per cent equity in my home? The intent would be to rent it out until I have to move into it.

Answer: Real estate, especially in B.C., has certainly been the place to invest recently, where even Vancouver condo prices showed a year-over-year increase of 19 per cent as of February.

No one can predict whether this blistering pace of growth will continue, but here are six considerations when making your condo-purchase decision:

investment property tweet1. Down payment – Even with 100 per cent equity in your home, you will need to come up with the cash to buy the property outright or for a down payment of at least 20 per cent to avoid paying for mortgage default insurance.

2. Cash flow – Will the rental cash flow be sufficient to cover the monthly and annual condo costs? If not, you’ll need to be prepared to cover the costs from your personal budget. Remember to factor in potential vacancy periods.

And it’s not just mortgage payments that take a chunk out of your budget; there are ongoing maintenance, strata fees and property taxes, not to mention real estate, legal fees and other costs to consider.

Read the full article at The Globe and Mail

 

 



Category(s): Ask Your Money Coach, Investing
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